IMF Predicts Economic Growth, But Warns of High Oil Prices

The International Monetary Fund Wednesday predicts robust economic growth will continue this year and next, driven largely by the thriving U.S. economy. But the IMF in its World Economic Outlook cautions high oil prices and rising interest rates cast a cloud over its otherwise sunny economic forecast.

IMF chief economist Raghuram Rajan says the world economy is performing well and even better than had been predicted six months ago. The pace of growth has slowed only slightly from last year's 5.1 percent, which was the best overall performance in several decades.

"While we project a still relatively robust 4.3 percent growth in 2005, volatile oil prices and higher interest rates create some downside risk," Mr. Rajan said. "Also, we see an increasing divergence across regions. The expansion continues to be overly dependent on the United States and emerging Asia."

The U.S. economy, the world's biggest, is expected to grow by over 3.5 percent, while China and India will grow by over eight percent and nearly seven percent respectively. By contrast, growth has been revised significantly downward in Japan and to a lesser extent in Western Europe.

Mr. Rajan says the economies of Latin America and the Middle East are set to grow, but particularly encouraging signs of recovery come from Africa.

"One of the brighter spots in the current global recovery has been the acceleration of growth in sub-Saharan Africa to over five percent in 2004, which is the highest in almost a decade," Mr. Rajan said. "We expect growth prospects to remain favorable in both 2005 and 2006."

The IMF says, although the prices of oil have risen to over $50 per barrel, the increase has not yet had significant depressing impact on world growth. The IMF says it does not anticipate any sharp drop in oil prices.

Among its principal policy recommendations, the IMF wants the United States to boost its savings and cut its budgetary and trade deficits. It wants China to slow down its stunning investment growth. And it advises the world's richest countries with rapidly aging populations, to scale back overly generous but seriously underfunded retirement programs.